San Francisco's 'Mansion Discounts' Are Luring Tech Millionaires

Jeff Paster, a developer of luxury homes in California’s Marin
County, couldn’t find a buyer for the brand-new waterfront
mansion he listed in January for $45 million.

He’s expecting that one will turn up at an auction this weekend,
with a starting bid set at $25 million.

“People at this income level always have money,” Paster said in
an interview at the 15,000-square-foot (1,400-square- meter)
residence on Belvedere Island, a tony enclave north of San
Francisco that’s known for views of the downtown skyline and
Golden Gate Bridge.

“We had qualified buyers circling for months, but with no sense
of urgency. This sets a deadline.”

Technology executives paying discounts to listed prices have been
active buyers of luxury properties this year in the San Francisco
Bay area, where the growth of social-media and Internet firms
including Twitter
Inc. and Yammer
Inc. has created a new wave of millionaires.

Some older homes sat unsold for years before finding buyers, said
Rick Turley, president of Coldwell Banker Residential Brokerage
of Northern California.

In 2012, there have been 13 publicly recorded transactions for
more than $10 million in exclusive San Francisco neighborhoods
such as Pacific Heights, Presidio Heights and Sea Cliff,
according to DataQuick, a research firm. That’s up from six sales
last year and a dozen in 2007, the previous high mark. The
numbers don’t include deals in expensive areas outside the city,
such as Belvedere or Tiburon, in Marin County; Atherton in San
Mateo County; or Palo Alto in Santa Clara County.

Home Demand

“Over a long listing period, it’s hard to say what will happen,
because obviously the market is constantly changing,” Turley
said. “The success of tech and social media means people are
looking very generally at San Francisco and the Silicon Valley as
places to live because these businesses are sourced here. It’s
highest on their radar.”

Initial public offerings in 2012 by Bay-area companies raised a
record $17.5 billion in public equities markets, including sales
by Menlo Park-based Facebook
Inc., Yelp Inc. in
San Francisco and Workday Inc. of Pleasanton, according to data
compiled by Bloomberg.
The total is more than double the $8.3 billion reached in 1999,
the height of the dot-com boom.

This year’s Bay area IPOs generated $9.4 billion in cash for
selling shareholders. Other investors have been able to generate
money before initial stock sales through the rise of
secondary-share markets such as SharesPost
Inc.

Yammer Founder

Yammer founder David
Sacks, who sold the social-media company to Microsoft
Corp. in June for $1.2 billion, earlier this year bought an
unfinished home in Pacific Heights that had been listed for $38.5
million. The transfer tax indicated a $20 million sale.

Sacks’s new residence, built in the style of a French chateau,
was last purchased by John Sperling, founder of the University of
Phoenix, who paid $32 million in 2002, said David Barrett of
listing brokerage Warwick Properties Group.

“It’s built to be the finest residence in San Francisco, from
limestone quarried in France and with the same glaziers who
worked on the Eiffel Tower renovation,” Barrett said.

This month, Jay Paul, the San Francisco-based developer of 6
million square feet of Silicon Valley offices, including
Google
Inc.’s four-building complex in Sunnyvale, completed a purchase
in the same neighborhood, said a person with knowledge of the
transaction who asked not to be named because it hasn’t been made
public. The house sold for $28.25 million, said Dona Crowder of
TRI Coldwell Banker, a co-listing broker on the home. She
declined to comment on the buyer.

Seller Deals

The deal was at a 48 percent discount to the asking price in
2007, around the time U.S. housing prices peaked. The seller had
most recently sought $34 million, Crowder said.

Paul didn’t return a telephone message seeking comment.

In some cases, luxury discounts this year in San Francisco and
the Silicon Valley are a reflection of aged homes built decades
ago that needed extensive renovations, Crowder said. Sellers were
also motivated by the prospect of higher capital gains taxes in
2013, she said. Her listing on Broadway in Pacific Heights
received higher bids in the past, including one earlier this
year, which were rejected by the seller, she said.

“The generations are turning over in this neighborhood,” Crowder
said in a phone interview. “If it were understood back then that
record prices were being offered, it would have been wise to
sell” in 2007.

Dorsey, Benioff

Jack
Dorsey, a Twitter co-founder, paid $9.9 million in February
for a “humble” two-bedroom house in Sea Cliff that had been
listed for $12.5 million, said Olivia Hsu Decker, owner of
Tiburon-based Decker Bullock Sotheby’s International Realty and
Dorsey’s agent on the deal. Salesforce.com
Inc. Chief Executive Officer Marc
Benioff bought a nearby house in 2009, Decker said.

The Sea Cliff neighborhood is named for its location high above
the Pacific Ocean, west of the Golden Gate. In May, Dorsey, who
is known to take public buses to work, tweeted a quote from the
Chilean poet Pablo Neruda, “I need the sea because it teaches
me,” Decker said in an e-mail.

Other multimillion-dollar homebuyers this year include Mark
Pincus, founder of online game maker Zynga
Inc. He purchased a Pacific Heights house in July for $16 million
after a $500,000 price cut, said Decker, who represented him in
the past and also is the listing agent for the Belvedere home.

Rising Prices

The region’s broader housing market is also showing strong
demand, bolstered by the addition of 32,400 new jobs in the San
Francisco metropolitan area in the year through November. House
and condominium prices in the nine-county Bay area last month
rose almost 21 percent from a year earlier to a median $438,000,
the highest since August 2008, according to San Diego-based
DataQuick.

Paster has been developing the Belvedere estate since 2008, when
he acquired two adjacent lots for $9.3 million, and put the
property up for auction in November after two price reductions,
the most recent to $35.9 million. The decision was made with the
aim of “causing those interested to act,” he said. There is an
undisclosed reserve beyond $25 million.

“This is one-of-a-kind property,” he said in an interview at the
home earlier this month, seated behind a French antique desk in
the library, the town of Sausalito visible through
floor-to-ceiling windows behind him. “It’s like a Picasso. How
much is that worth?”

The 1.14-acre (0.46-hectare) site hugs the shore, with the house
laid out in two wings on three levels. The seven bedrooms and
living areas have mahogany flooring, and the nine bedrooms are
tiled with marble and limestone. Terraces paved with fossil stone
from India are accessible from most rooms on the main floor
through oversized folding doors.

‘Beautiful Spot’

Belvedere, about 17 miles (28 kilometers) north of San Francisco
by car and less than a square mile in size, became a favored spot
to build summer homes at the end of the 19th century, said Dave
Gotz, archivist of the Belvedere-Tiburon Landmarks Society. The
community, connected to Tiburon by a natural causeway so not
technically an island, had the virtues of a warmer climate
compared with the windy city.

“It’s a beautiful spot, with small streets and steep hillsides
coming down on the west side,” said Mike Fuson, Belvedere’s
interim city manager. “The housing stock is expensive.”

--With assistance from Ari Levy in San Francisco and Lee Spears
in New York. Editors: Christine Maurus, Kara Wetzel

To contact the reporter on this story: Dan Levy in San Francisco
at dlevy13@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at
kwetzel@bloomberg.net